Today’s workforce is highly mobile. Thanks to the globalization of business, cloud technology advancements and the ubiquity of mobile devices, it’s never been easier for employees to work outside of the office, no matter their particular industry. In fact, research firm IDC predicts that mobile workers will account for nearly 75 percent of the entire U.S. workforce by 2020.
Mobile employees can save organizations substantial costs. That said, failing to accurately track their on-the-go expenses can quickly negate any financial benefits. For instance, for organizations with employees who drive for business, such as transportation and logistics companies, close attention must be paid to continually tracking both the fixed costs (e.g. insurance, depreciation or licensing fees) and the variable costs (e.g. fuel, maintenance or repairs) associated with driving a personal vehicle on behalf of a company.
Overcoming FAVR Misconceptions
Fixed and Variable Rate (FAVR) reimbursement is the only IRS-recommended mileage reimbursement method designed to help accurately reimburse mobile employees tax-free who are driving their own vehicles for work. As such, many organizations elect to leverage this methodology for their vehicle reimbursement programs – as it is the most fair and accurate when compared to other options. Still though, several organizations – including some in the transportation and logistics sector – have reservations about implementing FAVR vehicle reimbursement programs. This is, however, largely due to the fact that these types of programs are often misunderstood.
Below are two common fears regarding FAVR programs, with the truth about the methodology explained:
Tracking Employees’ Mileage Feels Too “Big Brother”
FAVR vehicle reimbursement programs aren’t all-knowing trackers that record every employee move or location. Designed to automate mileage logging only for relevant, business-related travel, employees can delete or add information at any time if needed. Also, instead of manually logging and submitting timesheets, employees can choose to use GPS-based mileage tracking that integrates with common CRMs to save time and boost productivity while they’re on the road.
Businesses can also benefit from moving away from manual mileage submissions and embracing GPS-based solutions. By gaining access to more accurate employee mileage logs and activity reports, for instance, they can obtain greater visibility into their mobile workforce operations.
Switching to a FAVR Program Will Upset Employees
Managing employee expectations when switching from a fleet, allowance or CPM (i.e. cents-per-mile) reimbursement model to a FAVR program can create anxiety, especially if managers are concerned that their mobile workers will view FAVR as a tactic for taking away their company car or cutting down on their reimbursement amount. These fears can be instantly alleviated upon initiating a FAVR program with the following benefits:
- Tax-Free Reimbursements: Because FAVR programs are based on individualized driving costs and are part of an IRS-approved revenue procedure, they’re not subject to FICA taxes or income taxes. By eliminating tax spend, a FAVR program allows an organization to cut costs while still keeping mobile employees’ take-home pay amounts the same (and their take-home reimbursement is tax-free, too!)
- Vehicle Flexibility: Unlike with fleet reimbursement programs where an organization provides employees with company cars, FAVR programs give employees the flexibility to choose their own vehicle and get reimbursed for the cost of ownership and any other related expenses over time.
- Reimbursement Options: With FAVR programs, employees can use their reimbursement money for anything, such as family expenses or groceries; it doesn’t have to go toward their vehicle or any other business use case.
- Asset Advantage: Since employees own their vehicle within FAVR programs, they gain the advantage of having a valuable asset that is essentially paid for in part by their company. This also means they can cash in on this asset and resell it, should they ever want or need to do so.
The Undeniable Benefits of FAVR
By removing tax liabilities and leveraging real-time geographic and mileage-related cost data, FAVR vehicle reimbursement programs can lead to greater reimbursement accuracy, improved employee efficiency and cost savings of up to hundreds of thousands of dollars per year. It’s also important to note the competitive edge such programs can provide. By optimizing companies’ financial margins and allowing for more employee control, FAVR programs can help retain talented employees and make it possible to innovate ahead of competing organizations, even on a lean budget.
To ensure success and company-wide support of FAVR programs, take the time to fully understand the methodology and clearly explain its benefits to everyone involved. Consider conducting a cost comparison between current and future reimbursement amounts prior to launching your program, as this will objectively demonstrate the very real, tangible value of FAVR implementations to both employees and key company stakeholders.
Pat Larkin is an Enterprise Sales Executive at Motus, the definitive leader in reimbursement solutions for businesses with mobile-enabled workforces. Pat is passionate about helping to simplify reimbursements for on-the-go workers. To learn more about Motus please visit www.Motus.com or follow @motusdotcom.
Mileage reimbursement stock photo by OpturaDesign/Shutterstock